After a run to almost its all-time high last week, Tesla’s stock had a 3% setback in pre-market trading this morning after Adam Jonas from Morgan Stanley, one of the most followed auto industry analysts when it comes to Tesla, downgraded the stock following its first quarter results.

Jonas downgraded the stock to “Equalweight” since its run to $325 made it past his $305 price target. The analyst also warns investors that Model 3 deliveries could be much lower than anticipated in 2017 and 2018.

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In a note to clients this morning, Jonas explained his downgrade:

“Following 1Q results, we have updated our model and now have a higher estimate of OP loss in 2017 and 2018. Following these adjustments (mainly higher R&D, SG&A and the impact of higher capex), we now expect Tesla to remain loss-making on a US GAAP basis until late 2019. Our estimate of cash burn for 2017 widens to $3.1 billion from $2.3 billion previously, taking our forecast of gross cash to under $1 billion by the end of 2018. By itself, these changes to our model would have taken our price target to $292. Rolling forward the starting point of our DCF of the core business to May 1st (from Jan 1st) was an equal offset. Our price target thus remains unchanged at $305, or roughly 6% downside from the current stock price.”

Jonas’ entire model relies on Model 3 deliveries, which should be Tesla’s main revenue driver over the next few years.

While Tesla guides for tens of thousands of deliveries in 2017 and hundreds of thousands in 2018, the Morgan Stanley analyst remains firmly more cautious despite what he is seeing from investors. He wrote in the same note:

“Model 3 expectations appear to have recovered substantially over the last 4 months. Earlier this year investor expectations for Model 3 hit a trough with most investors we spoke with at that time expecting zero deliveries of the model during 2017 A series of subsequent reiterations from management and the spotting of release candidates testing on public roads have increased expectations of timing and volume significantly. Although we cannot quantify what the market expectation is at this point, we believe our forecast of 2k Model 3 deliveries this year is substantially below current market expectations. Looking to 2018, we believe our 90k volume forecast is also far below Street expectations, possibly one-half or one-third market expectations for Model 3 volume next year.”

Instead, he remains focused on his concept of “mobility as a service” and that the industry will move to a mile driven model with shared autonomous fleets. In the past, Jonas portrayed Tesla has a likely winner of this shift, but he now warns of upcoming competitors like Waymo and Apple.

Jonas is one of the top-ranked analysts on Tip Rank: #408 out of 4561. He has one of the most extensive histories of coverage on Tesla: